The global chemical industry stands at a crossroads as it enters 2026. While industry trade organizations have projected 3.5% growth for global chemicals production, the industry faces challenges, including high energy prices and structural costs, especially in Europe, low utilization indicative of weak demand and overcapacity, geopolitical tensions, and disruptive trade policies. Yet there is still hope for some rebound from the severe downcycle of the past two years, with brighter outlooks for specialty chemicals and those segments capitalizing on clean technology and artificial intelligence (AI). But even here, regional investment dynamics suggest Europe may be in danger of missing out on the full potential of the recovery.
Ultimately, to ensure long-term strength, the industry must focus on strategies that promote performance transformation through the reduction of structural costs, stronger margin recovery, and supply chain resilience — all with a strong leverage of technology, AI in particular. Despite being temporarily out of favor, the transition toward sustainable products and green technology along with increased circularity will eventually reappear as a dominant investment and growth theme for the industry beyond 2026 and into the 2030s.
In the meantime, advancements in technology, along with resilience and agility, will reshape competitiveness and determine which players best weather current trade, regulatory, and geopolitical uncertainty.
Regional outlook for chemicals markets in 2026
The global chemicals industry faces diverging regional dynamics, with each market shaped by unique structural, regulatory, and competitive pressures.
Structural headwinds and regulation in Europe
Over the last five years, Europe’s chemicals production has declined significantly — with Germany down as much as 18% between 2019 and the second quarter of 2025 and the UK down 30%, for example. European chemical companies have been waiting for a solid rebound following the energy crisis of 2022-2023, which was generated by the russian invasion of Ukraine and the subsequent sanctions against Russia. But even though energy prices did begin to come down, they remain substantially higher than before the conflict, hurting regional producers’ competitiveness.
For the European chemicals industry, the current downturn is structural, not cyclical. Besides stubbornly high energy prices, the sector also faces more stringent regulation than producers in other regions as well as global overcapacity that has slowed growth for chemical companies in all regions.
Even as the European Union and UK have been attempting to delay or soften regulations for chemicals makers, companies continue to face rising costs related to the price of carbon dioxide and the extensive documentation needed for compliance. They also confront the limited willingness of customers to pay a premium for green solutions. But commodity chemicals — those traded on global markets — face tougher challenges than specialty chemicals and solutions because of production overcapacity. For instance, aggressive capacity additions in China created significant oversupplies of core commodity chemicals, such as olefins, polymers, and intermediates, which have led to lower profitability and a shift in trade dynamics. Significant plant closures have been announced and are being executed by major players to take low return assets off the market.
Industry forecasts, including those from European trade association Cefic, project European production growth of around 3% through 2026, but industry executives tell us they are more cautious and not expecting a true recovery in 2026. Instead, they’re looking for flat growth.
US advantage from low-cost energy and feedstocks
The US chemical industry continues to benefit from low energy costs, the result of abundant availability of domestic shale gas. Producers also benefit from lower feedstock costs than in Europe, but recently supply chain disruptions and tariff adjustments have raised costs. The American Chemistry Council expects production to expand around 3% in 2025 and 2026.
While growth in core end-markets like automotive or construction has stalled, segments linked to agricultural chemicals and semiconductor manufacturing show robust growth. Consumer-focused product lines also remain under pressure from rising raw material costs and softer demand.
Asia's capacity expansion and shift toward specialties
Asia’s chemicals market, led by China, India, and Southeast Asia, is driving global demand. The region is working through the tail end of destocking trends, with production and restocking expected to gain pace into 2026.
China now represents around 50% of global chemical capacity, up from about 15% only two decades ago, and with the support of the government, the Chinese chemical industry is building 70% of new capacity additions through 2027. Given the current overcapacity in many product lines, it’s clear that Chinese producers are prioritizing market share and dominance over higher prices and profit.
In South Korea and Southeast Asia, the competitive pressure from China’s capacity expansion, lower prices on commodity chemical products, and the reduced availability of cheap gas is prompting significant, even government-mandated reduction in capacity and restructuring.
Besides closing capacity, many Asian chemicals producers outside of China, especially several South Korean giants, have shifted to specialty chemicals production in recent years, where there is less pricing volatility and more attractive operating margins.
Middle East diversification and evolving regulation
Middle Eastern producers have been leveraging cost advantages with cheap oil and gas feedstocks in 2025 and are expected to continue to benefit from that next year. But the region’s producers are moving away from reliance on commoditized oil and gas products by increasing downstream integration and diversifying into higher value downstream products. This regional strategic theme has been reflected in recent large-scale merger activity by major players such as Adnoc or the formation of Borouge Group International and is expected to persist in 2026.
The external regulatory environment in the region is evolving from a fragmented, permit-based systems that focused on occupational safety and health and pesticides towards a comprehensive management, influenced by global standards like the United Nations-backed Globally Harmonized System of Classification and Labelling of Chemicals. Key players like the Gulf Cooperation Council (GCC) are driving harmonization, but significant national variations remain, resulting in a regulatory environment posing challenges and opportunities for exporters.
Strategic agenda priorities for chemical industry leaders in 2026
To thrive in this environment, we recommend the following priorities for chemical industry top management:
Capital allocation, cost transformation, and AI integration
This requires chemical companies to maintain cost discipline and cut structural costs. It’s about fostering leaner and more agile operating models that cut out waste, and this includes leveraging AI systematically for step changes in resourcing needs, standardization and speed.
As well as keeping a tight rein on spending, companies must also make sure that what they invest in reflects a forward-looking strategic agenda. It’s important to take an investor lens to decisions and ensure that strategies are based on enhancing enterprise value. That includes looking beyond the current disillusionment with green agendas. Ultimately, low-carbon technologies, renewable energy, and recycling hold the keys to future growth agendas.
Portfolio optimization and shifts toward specialty chemicals
Chemical players need to transition toward more pure-play configurations, review portfolios with a rigorous best-owner principle, restructure commodities, and systematically evaluate shifts toward specialties. This will include deeper downstream integration and investments in growth segments, such as electronics, healthcare, or clean energy materials.
Companies with a healthy balance sheet can leverage strategic mergers and acquisitions (M&A) to acquire discounted assets under distress. In addition, build capabilities to not only pursue classical M&A moves, as well as the full breadth of partnering options, including alliances or joint ventures for technological and geographic expansion.
Building resilient and low-carbon supply chain strategies
Because of increasing regional disparities, companies need to review distribution channels with an eye to mitigate risk from geopolitical tensions and carbon-intense suppliers. Companies should prioritize resilience over pure cost by diversifying suppliers and procurement strategies. It’s also important to broaden feedstock sources through bio-based and recycled materials. Producers can do this by investing in scenario planning and digital supply-chain management to maintain transparency and allow active supply chain steering in volatile markets.
Performance culture, talent, and organizational agility
Likely one of the biggest themes to tackle is cultural transformation to increase decision-making speed and agility in legacy corporate structures. This requires executives to be more proactive and pragmatic and revive their entrepreneurial spirit. Given demographic and technology advancements, this includes tackling leadership activation, workforce transformation, reskilling in sustainability and digital capabilities, and fostering innovation through cross-functional teams and rapid prototyping.
Implications for long-term competitiveness in chemicals
As the chemical industry steps into 2026, focus on resilience, competitiveness and building a performance culture will be key to navigating the challenges ahead and capturing emerging opportunities in a persistently volatile and uncertain environment.